25 Dec : Crude Oil prices dropped to 35 dollars a barrel as another round of gloomy economic data revealed that United States has fallen deeper into recession as Crude prices fell 9 percent on Thursday to settle at 35.35 dollars, down nearly 4 dollars or 9.31 percent.The losses came after government data showing U.S. jobless claims rose to a 26-year high and consumers cut spending for the fifth consecutive month in November.
Nearly 2 million U.S. workers have lost their jobs this year, driving the unemployment rate up to 6.7 percent and slowing consumer spending as incomes shrank.
Oil prices have dropped about 110 dollars a barrel since July as a global financial crisis has cut consumer and business demand for fuels, raising alarm bells for OPEC producers that have slashed 5 percent of global oil production to stem the slide.
London Brent crude settled at 36.61 dollars a barrel.
"The downside risk to oil price in the current account so strongly manifest till recently has receded and thus the likely rise in trade deficit due to slowdown in exports may be offset", the Mid-Year Review of the economy tabled by Government in Parliament said.
India’s trade deficit during the first seven months of the current fiscal (April-October) has shot up by about 60 percent to USD 73 billion, primarily on account of soaring crude prices.
The per barrel crude oil prices in the international market which have declined sharply from a high of USD 147 to below USD 40, will significantly reduce the country’s import bill for the remaining part of the financial year. Oil accounts for nearly one-third of country’s import bill.
The developments following global financial meltdown which will have a negative implications of country’s balance of payments position include decline in exports, outflow of FII funds and declining foreign currency reserves.
The exports, according to the review, has declined by 12.1 percent in October.
It attributed the decline in export growth in October after a period of 15 years "mainly to spike in the growth rate to 48.8 per cent in October 2007."
On the outflow of FII money from the country following following crisis in developed economies, it said, "though the risk of enhance level of net FII outflows remain, barring distress sale, this is somewhat bounded by the present lower level of equity markets."
The review suggests that there could be greater outflow of FII money with improvement in the equity markets putting further pressure on the country’s foreign exchange reserves which have declined by over USD 65 billion since 1st April 2008.
The review further said, imports in the first seven months of the current fiscal went up by 36.2 percent over the corresponding period last year.
Petroleum, oil and lubricants grew by 60 percent to USD 66 billion during the April-October period.
However, non-oil imports grew by a meagre 25.5 percent. The country had to pay more on oil front because of rising global prices of crude.
Terming the short-term outlook for the balance of payment "clouded" by external environment, the review said the contagion effects of the global turmoil were being reflected in form of decline in the capital account by 26 percent in the first quarter of the current fiscal compared to the robust growth recorded in the first quarter of the previous two years.